Great American Myths

What I think of as the American Ideology is based upon some remarkable myths that live on and on though careful examination of our history demonstrates their utter falsity. One of the most central of these myths is that our history and success is based primarily upon 'rugged individualism.' Now don't get me wrong, America is a relatively individualistic country; but this individualism was much more in evidence when Tocqueville made his famous visit to America in the 1830s. This visit was largely before the primary effects of the Industrial Revolution had taken place. In the 1830s there were only the beginnings of manufacturing enterprises and railroads were in their infancy.

Moreover, our individualism was made possible by unique circumstances. We were inhabiting a large and abundantly rich continent whose prior inhabitants were no match for our technology and would in due time be killed or penned up on reservations largely of our choosing. (What happened to the Native Americans is what is currently happening to the Palestinians; if the Israelis are successful, as they have been so far, eventually the remaining Palestinians will be penned up in enclaves largely of the Israelis choosing.) Happening to have settled a very rich and extensive territory with only a small number of people Americans had the luxury of being individualists; there was enough territory so that most families could have their own plot of land to build a home and raise food for at least their own needs. In feudal Europe there was an already existent division of land and tenure that was very difficult to displace; not so in relatively virgin American territory.

But even given these unique circumstances facilitating individualism in America, it wasn't long before our government started to institute policies which replaced a relatively pure individualism with corporate forms. As David Moss wrote (p. viii) in When All Else Fails: Government as the Ultimate Risk Manager "deep government involvement in the management of private sector risks is nothing new in the United States, despite the nation's reputed commitment to laissez-faire." Or (p. 2): "Even in a country well known for its hostility to government, policymakers have emerged as aggressive risk managers. The purpose of this book is to explain both how and why this has come to be." Indeed, Moss continued (p. 3):

A close look at American history reveals that state and federal policymakers had been [providing insurance against certain economic risks]... at least since the dawn of the Republic. Yet most accounts in the popular press foster the opposite impression--that government 'meddling' with private sector risks is of recent vintage. Articles on the subject often hark back to some earlier time, when America was full of vigor and individualist spirit and when every citizen faced his own risks with a sense of stoic independence and pride. But such a time never really existed.

Let us just take one very important example which demonstrates very clearly that the American Ideology's myth of individualist free enterprise is thoroughly misleading: the legislative creation of public corporations and the passage of limited liability laws to protect passive investors.

The corporation itself, as Chief Justice John Marshall described it (Moss, p. 57) is "an artificial being, invisible, intangible, and existing only in contemplation of law." There are 'natural' individuals like you and me; we are naturally occurring beings that it took no legislature to create. 'Individualism' refers to us naturally occurring persons. And business originally was conducted by natural individuals, who owned and managed their own businesses and farms. Even the partnership involved active owner-investors who ran their own businesses. But then the state stepped in and created the corporation which made it possible for there to be passive investors, people who invested capital in a business but were not active managers. Thus, the very creation of the corporation itself, was the result of government supporting through legislation the accumulation of large scale capital for manufacturing enterprise. (Note also that creation of passive investors and corporations contributed to the loss of local, face-to-face community that conservative writers like Robert Nisbet deplore. When business was local and owned and operated by an active investor-owner you were more likely to conduct business and have a relationship with that owner. With the growth of corporations and passive investors more social 'distance' is created between the consumer and the business owner.)

I am not here addressing whether this was a good idea or not; my point is that in the very early history of America government was actively and positively supporting economic enterprise and pushing it away from the true individualism of natural persons who owned and managed their own businesses and farms, toward artificial and corporate forms. This is just as much government 'intervention' in the economy as today's interventions; the difference is that when government 'intervenes' to aid business there are fewer complaints; however, when government 'intervenes' to help naturally occurring individuals with workers compensation, unemployment, old age insurance, or health insurance--then the cries of those who have benefitted so greatly from previous government 'intervention' are heard complaining of government 'meddling', 'moral hazard', and the loss of our 'rugged individualism.'

But having created the corporation through legislative intervention in the economy, this was not enough. Apparently passive investors in corporations who could be sued for any and all debts the corporation incurred was too much of a risk for these rugged individual passive investors to be expected to take. Thus, legislatures passed limited liability laws protecting passive investors against any greater losses than the extent of their personal investment. This shifted risk from the passive investors in corporations to the creditors of these corporations; with such limited liability protections apparently more investors were willing to provide capital to corporate manufacturing enterprises facilitating the use of Other People's Money and the accumulation of capital available to corporate managers.

Again, whether you think this was the greatest thing since sliced bread--as many in America indeed did--or not, is NOT the point of this discussion. The passage of limited liability laws was quite clearly government 'intervention' in the economy just as much as is legislation passed today that would place limits upon corporate power. The difference is that today's corporations were provided these legislative advantages as much as 150-200 years ago and have had this time to grow rich and fat and develop armies of mercenaries who will now come to their aid when any contemporary threat to their government-provided privileges is mounted; indeed, the business class has one whole political party, the Republican Party, devoted almost entirely to defending its privileges. (Yes, the Democrats also are pro-business but of the two parties the Democrats are by far the more likely to try to take small steps to level the playing field by supporting the interests of ordinary working people as well as those of the business class. Besides, I am not anti-business, I am anti-special privileges and power that enable one sector of the society to confuse, obfuscate and dominate other sectors of society.)